The data behind business tax reform

Holly Otterbein

Posted:
Tuesday, November 1, 2011, 3:55 PM

City Council could soon radically change the way business taxes and fees work in this city.

Two bills, which received committee-level approval last week, would relieve the business-privilege tax burden for small businesses, as well as eliminate many fees that new businesses have to pay just to get off the ground.

The bills’ sponsors say the proposals would bring new jobs to the city — and, just as importantly, level the playing field for local businesses. Maria Quiñones-Sánchez and Bill Green, who introduced one of the two bills, argue that Philly-based companies now pay more than their fair share of business taxes. They also say the current tax system punishes companies for locating inside Philly, and that their proposal would change that.

Ever since they began championing business-privilege tax reform last year, Council members Sánchez and Green have said the data backs them up.

So, naturally, It’s Our Money requested some of that data.

Below, you can take a look at the Greater Philadelphia Hotel Association’s analysis of how much Philly-based hotels pay compared to hotels that are based outside of the city, but do business here.

Here’s a fascinating tidbit we discovered:

Sánchez and Green have said that under the current tax system, companies that aren't based here can pay little or no business-privilege taxes on their profits — by recording their profits in other places, where business taxes are lower. They also argue that Philly businesses pay more on their profits because tax bills are calculated based on what they sell in the city, if they’re located in Philly, and whether they employ people here — and out-of-city businesses pay those taxes based only on sales in Philly.

The Greater Philadelphia Hotel Association’s data show that these Philly companies indeed pay more business-privilege taxes on their profits than their counterparts based outside of Philadelphia. For instance, a hotel that is based outside of Philly, but which made about $18 million in sales here, paid $0 on profits and about $26,000 on sales in business-privilege taxes. Compare that to a hotel headquartered in Philly, which also made about $18 million in sales here: It paid about $238,000 on profits and about $26,000 on sales in business-privilege taxes.

Check out the chart below yourself for more eye-popping examples of this. (Ignore the row titled “Proposed.” It refers to a proposal that was on the table last year, not the current one.)

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Every year, city government spends slightly more than
$4 billion. Where does all that money come from? More importantly,
where does it go? Are we getting the most bang for our tax buck?
“It's Our Money” is a joint project between
Philadelphia Daily News and WHYY, funded by the William
Penn Foundation, designed to answer these questions.